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Thursday, February 12, 2009

It's another week and the equity markets are doing their best to befuddle investors and traders by moving in a new direction than the previous week. To complicate matters, the major indices are not moving in unison with the Power Shares QQQQ Trust (symbol: QQQQ) showing signs of starting an uptrend. The other major indices clearly remain under pressure, and still represent better selling opportunities.

To review the methodology and the significance of the key price levels please click on this link.

My interpretation of the SPY (S&P500 proxy) chart (see figure 1) is as follows: resistance remains at 86.78, and a trading advance in the SPY will not commence without a definitive close over this level. The lows (81.17) of the range are clearly noted and were tested and held last week. This morning's gap down is retesting support levels (81.17).

Figure 1. SPY/ weekly

Figure 2 is a weekly chart of the Dow Jones Industrial ETF proxy, the Diamond Trusts (symbol: DIA). The DIA remains the "weakest" of the four major indices. A break below the maroon colored trend line should portend weakness and a possible acceleration lower in prices. The lows (80.15) of the trading range were tested and held last week, but the bounce was met with selling this week at old resistance levels (82.64). This morning's gap down is into the bottom of the down trend channel. I would expect a bounce, but the down trend continues with the November, 2008 lows in sight.

Figure 2. DIA/ weeklyFigure 3 is a weekly chart of the Power Shares QQQQ Trust (symbol: QQQQ). The key resistance level of 29.72 was decisively taken out last week; in addition, the QQQQ broke out of its 13 week range by closing above the most recent pivot high. These are bullish developments. Old resistance becomes support, so 29.72 is now support, and we should expect buying here if the bullish price action is to continue. If this scenario plays out bullishly (and this is still a big if in this environment), the QQQQ's could easily make it to $36.

Figure 3. QQQQ/ weekly

Figure 4 is a weekly chart of the i-Shares Russell 2000 Index (symbol: IWM). IWM is no man's land as prices remain in the middle of the channel. A close below 43.64 will lead to a retest of the lows, and a close above 49.23 is a breakout from the range.

Figure 4. IWM/ weekly

The good news for the bulls is the positive price action in the more speculative NASDAQ 100. Th bulls can always point to NASDAQ 100 leadership; it is something they understand and believe in, and like the late 1990's, technology can always light a fire under the rest of the market.

The bad news for the bulls is that the market environment remains treacherous, and it remains pretty much driven by sentiment, which I contend is not supportive of higher prices. Only 1 out 4 of the major indices is looking bullish, but once again, it is everybody's favorite, technology.